Pros and Cons of Getting a Second Mortgage

Pros and Cons of Getting a 2nd MortgageFor most people, a negative connotation comes to mind when they hear the term second mortgage. This is because most people believe that only those people who are broke and are in desperate need for money are the ones who take out a second mortgage.  While second mortgages were once stigmatized, many homeowners nowadays get hold of second mortgage. Since money, unfortunately, doesn’t grow on trees, they now see it as a realistic option for getting the money they need. But should you?

Here are the pros and cons of getting a second mortgage.

PROS

Home improvement projects

The money from a second mortgage can be very helpful if you use the funds appropriately. One way to put your equity to good use is by using it to tackle some improvement projects.

If you discovered that your roof is leaking, you can use the money to have it repaired as soon as possible. Addressing the issue early will prevent it from turning into a more complicated and costly problem. Plus, home improvement projects can help increase your home’s value.

Tax deductible

As long as you follow the IRS’ rule, the interest on a second mortgage is tax deductible. If you itemize your deductions, you can actually deduct the interest you pay on your second mortgage.

CONS

Fees

Just like first mortgages, there are some steep fees associated with securing a second mortgage. Borrowers will need to pay for application costs, appraisal fees and other closing costs.

Higher interest rate

Since the lender is taking more risk, the interest rate on a second mortgage is usually higher as compared to the first one. With the higher interest rate on the second mortgage, it is important that you factor in the mortgage payment into your household budget and make payments a priority.

Foreclosure risk

A second mortgage is a loan that is taken out against the value of your property. That means you can lose your home if you fail to repay your mortgage. Plus, you could end up owing more on your loans if your house loses value. Before you close, make sure you’ve thought through the decision and you know the risks.

Reasons to Refinance Your Mortgage

Refinancing your mortgage is a big decision that involves several factors. Before refinancing, consider what your goals really are.

This blog post highlights some of the best reasons why people decide to refinance their mortgages. Read on to find out if refinancing is right for you.

Lower interest rate

One of the best reasons to refinance is to lower the interest rate of your existing loan. If the current interest rate is lower than when the home was originally financed, then it might be a great time to do so. If you could reduce your interest rate by 2%, then it’s enough of an incentive to refinance. Remember, a lower interest rate can have a profound effect on your monthly payments; thus, allowing you to save money.

Lower your monthly payments

If you are on a tight budget, refinancing can be advantageous as it helps you lower your monthly payment. This can be done by refinancing with a lower interest rate or a longer time frame.

If you think you’re paying too much, feel free to contact your mortgage broker to see if you could save money by refinancing.

Shorter the term of your loan

If you have a 30-year loan and wanted to shorter the term of your loan, refinancing is a great option. Of course, this means that you’ll have to pay higher monthly payment. But if you can afford it, then you should give it a go.

With a lower interest rate, you may find that the difference between a 15 and a 30-year mortgage isn’t that big after all.

Get cash out

With low interest rates, you might be tempted to refinance your mortgage and borrow money against the equity has built up in your home. But before you do, you really need to consider what you’re going to do with the money. If you’ll use it to start a business or buy an investment property, then that’s a good reason to refinance. But if you’re planning to use the money to buy a car or go on vacation, you might want to rethink your decision.